Chapter 6
Internal Control and Financial Reporting for Cash and Merchandise Sales
ANSWERS TO EXERCISES

E6–4
Req. 1

a. Document procedures b. Segregate duties / Document procedures c. Establish responsibility d. Independently verify e. Document procedures f. Independently verify

Req. 2
| Steps | Documentation | Performed By |
|1. Request that goods or services be |Purchase requisition |Sales manager |
|ordered. | | |

|2. Order goods or services. |Purchase order |Materials/crew manager |

|3. Receive goods or services. |NONE | |

|4. Obtain bill for goods or services. |Supplier invoice |Accountant |

|5. Write check to pay the bill. |Company check |Accountant |

Receiving reports are not prepared to indicate the goods or services received.

Req. 3

Because receiving reports were not prepared, there was no way to independently verify that amounts charged by suppliers were for goods that had been delivered to authorized work sites. The materials/crew manager, who initiated the purchase order, could simply instruct suppliers to deliver goods to his home. The accountant could not detect this fraud because no documentation was available to indicate the address to which goods had been delivered. Had the company required